Binding: Digital
Format: Download: PDF
Label: Harvard Business Review
Languages: Array
Manufacturer: Harvard Business Review
Number Of Pages: 12
Publication Date: 1998-11-01
Publisher: Harvard Business Review
Release Date: 2008-08-23
Studio: Harvard Business Review

In this article, Bob Zider, president of the Beta Group, a California-based firm that invests in commercializing new technologies, presents an analysis of present-day venture capitalists and shows why its practitioners have a lot more in common with investment bankers than you might think. The popular mythology surrounding the U.S. venture-capital industry derives from a previous era. Venture capitalists who nurtured the computer industry in its infancy were legendary both for their risk taking and for their hands-on operating experience. But today things are different, and separating the myths from the realities is crucial to understanding this important piece of the U.S. economy. Today's venture capitalists are more like conservative bankers than the risk takers of days past. They have carved out a specialized niche in the capital markets, filling a void that other institutions cannot serve. They are the linchpins in an efficient system for meeting the needs of institutional investors looking for high returns, of entrepreneurs seeking funding, and of investment bankers looking for companies to sell. Venture capitalists must earn a consistently superior return on investments in inherently risky businesses. The myth is that they do so by investing in good ideas and good plans. In reality, they invest in good industries--that is, industries that are more competitively forgiving than the market as a whole. And they structure their deals in a way that minimizes their risk and maximizes their returns. Although many entrepreneurs expect venture capitalists to provide them with sage guidance as well as capital, that expectation is unrealistic. Given a typical portfolio of 10 companies and a 2,000-hour work year, a venture capital partner spends on average less than 2 hours per week on any given company. In addition to analyzing the current venture-capital system, the author offers practical advice to entrepreneurs thinking about venture funding.

Customer Rating:
Summary: Quite pricy and brief
Comment: The price is the only beef I have with this item. The material provides an excellent overview of the venture capital business but its a little pricy for 9 or so pages. I would have given it 5 stars if it had been $3.50 or less then again maybe I'm just cheap.

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Customer Rating:
Summary: Great Insight to Venture Capital
Comment: I am a small business owner looking at growing my own business and have thought about using Venture Capital (VC) as an option. I really did not want to read an entire book on VC fundamentals and this article was definitely the ticket. I was able to learn what types of returns, companies and industries are typically sought by VC firms. I was also able to get some insight on downside risk and management concerns that are posed by VC investments.

I have been fortunate enough to run a profitable business for 10-years without the need for capital and have very little experience in capital investment. This artical is packed with very useful information on anyone considering using a VC firm to fund their company.

This book was written during the Internet Boom in the late 1990's, but the author has some amazing insight to what would happen with the VC investments in inflated internet companies that went public. I am writing this review in July of 2006. This is a timeless article that will apply to any company who is considering working with VC in the current business era.

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Customer Rating:
Summary: Useful information clearly presented.
Comment: This nine-page reprint from the November-December 1998 issue of the Harvard Business Review is an excellent introduction to the economics and operations of venture capital funds. It specifically and accurately describes the motivations of venture capitalists, their investors and the entrepreneurs in whom they invest.

It will be of interest to entrepreneurs seeking venture funding, persons considering a career in venture capital, and anyone else with a serious interest in the subject.

The article describes the author as "president of the Beta Group, a firm that develops and commercializes new technology with funding from individuals, companies, and venture capitalists. It is located in Menlo Park, California."

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Customer Rating:
Summary: Clear introduction into venture capital
Comment: Bob Zider is president of the Beta Group, a firm that develops and commercializes new technology with funding from individuals, companies, and venture capitalist. This Harvard Business Review-article was published in November-December 1998, which was during the Internet/e-commerce boom.

"Contrary to popular perception, venture capital plays only a minor role in funding basic innovation." Zider discusses the role venture capital plays: it "fills the void between sources of funds for innovation and traditional, lower-cost sources of capital available to ongoing concerns." He then continues to describe the investment profile and the logic of the deal venture capitalists use to achieve their investors' high expectations at an acceptable risk. Zider also explains the attractive returns for venture capitalists (in return for financing one or two years of a company's start-up) and the reason why "seemingly bright and capable people seek such high-cost capital?" The article is complemented with some extremely useful sidebars to clarify this mythical industry.

Yes, I do like this article. This clear article kills some myths and fairytale stories about the venture-capital industry. It is primarily aimed at beginners, although some financial knowledge is useful for readers. For readers who appreciate this type of article I also recommend Justin Pettit's 2001-article 'Is Share Buyback Right for Your Company?' The author uses simple business US-English.

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